Groundbreaking

SQUARING THE MISES CIRCLE

“Eureka! Skousen has done the impossible. Students love it! I will never go back to another textbook.”

– Professor Harry Veryser, University of Detroit-Mercy

They said it couldn’t be done. Austrian economics is so different, they said, that it couldn’t be integrated into standard “neo-classical” textbooks. Consequently, college students learn little or nothing about the great Austrian economists (Mises, Hayek, Schumpeter).

Starting with Menger’s “Theory of the Good” and the Profit-and-Loss Income Statement

Professor Mark Skousen’s Economic Logic (now in its new 5th edition) aims to change that. Based on his popular course taught at Chapman University, Columbia Business School, and other institutions, Skousen starts his “micro” section with Carl Menger’s “theory of the good” and the profit-and-loss income statement to explain the dynamics of the market process, entrepreneurship, and the advantages of saving. Business students find this approach especially valuable. After analyzing the dynamics of the P&L statement, supply and demand diagrams are introduced.

Linking Micro and Macro

Then he incorporates a simplified version of “Hayek’s Triangles,” a powerful four-stage model of the economy to link micro and macro economics for the first time. For micro, he uses Stanford Professor John Taylor’s 4-stage process of making coffee:

Figure 1. Four Stages of Production of Espresso Coffee.

Then for the macro model, Dr. Skousen uses this universal 4-stage diagram:

Notice that this Hayekian 4-stage model ties into national income accounting. GDP represents the final stage of production – the value of all finished goods and services produced in a year.

GO Behind GDP: Measuring Hayek’s Triangle

Every quarter a public-traded company releases a financial statement that includes both the “top line” (revenues/sales) and a “bottom line” (earnings, net income).

Using the 4-stage model of the economy, Skousen applies the same approach to national income accounting. Based on his work, The Structure of Production (NYU Press, 1990), he identifies gross output (GO) as the value of all 4 stages of production (#1 through #4 above) or the “top line” in national income accounting, and GDP (stage #4) as the “bottom line.”

GO is a measure of Hayek’s triangle. It adds up sales or revenues at all stages of production throughout the year, while GDP counts only final sales.

GO is a vital statistic, as it includes the value of the supply chain, all the business-to-business (B2B) transactions that move the production process toward final use. It is a measure of the “make” economy, while GDP estimates the value of the “use” economy.

In Economic Logic, GO is incorporated as a more comprehensive measure of the economy, serves as a valuable tool in analyzing the business cycle, restores the business sector as the major driver of the economy, and deserves to be updated on a quarterly basis along with GDP.

GO is now a reality. In April, 2014, the Bureau of Economic Analysis (BEA) in the Department of Commerce announced it will publish GO every quarter along with GDP. Austrian economics (Hayek’s triangles) is now officially part of macroeconomic accounting! (For Skousen’s latest press release on GO, go to www.mskousen.com.)

For the first time, the 5th edition of Economic Logic fully integrates GO in the chapters 14-15 on national income accounting and throughout the textbook. GO is presented as the top line, and GDP as the bottom line in national accounting. As economists Dale W. Jorgenson, Stephen Landefeld, and Bill Nordhaus state in their book “A New Architecture in US National Accounts,” “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Added Highlights to the 5th Edition

In addition, here’s new material found in the 5th edition:

John Mackey’s “stakeholder” model of capitalism has been incorporated into the stages-of-production process in chapter 3. Moving the production process along requires the cooperation of all economic inputs or stakeholders.

Updated discussions on job creation, the labor force participation rate, and the recovery after the Great Recession is discussed in detail in chapters 10 and 25. Chapter 10 also addresses the unemployment issues in Europe and America, and the prospects for renewed growth under a Trump administration.

Recent government regulations (Sarbanes-Oxley, Dodd-Frank, SEC) following the 2008 financial crisis and the Bernie Madoff fraud are discussed in chapter 13.

The consumption and savings rate patterns of China are compared to those of the United States in chapter 17. This comparison helps to determine what drives the economy, consumer spending or savings/investment?

The end of the Federal Reserve’s “easy money” policies of ZIRP (zero interest rate policy) and Quantitative Easing (QE) in 2017 are debated in chapter 19.

The on-going debate on “austerity” vs. “stimulus” has been added to chapter 22.

What factor is more significant in the business cycle, Keynesian lack of “aggregate demand” or Hayekian “malinvestment”? See chapter 25.

The rise of state capitalism in China is highlighted in chapter 27.

The international gold standard, the defects of central banking, and the Mises/Hayek theory of the business cycle.

A full critique of the Keynesian Aggregate Supply and Demand (AS-AD) model, and a revolutionary Austrian alternative (chapters 22 and 25). Plus a critique of Marxism and socialist central planning (chapter 27).

Economic Logic is dedicated to Friedrich Hayek and Milton Friedman, thus drawing from the best of the Austrian and Chicago schools of free-market economics.

A glossary of terms has been added to this edition.

What Economists Are Saying

“An excellent balance of theory and the real world that no other text has achieved.”

– Charles Baird, CalState East Bay

“Better than any book out there! Skousen presents real business economics in a clear, provocative and logical fashion.”

– Ian Mackechnie, University of Wales

“Perfect for any economics student — designed to maximize learning while minimizing monotony. Simple, direct, and comprehensive.”

– K. Au, home school instructor

“My college econ classes, filled with perplexing theories like the paradox of thrift, GDP and Keynesian fiscal policy, were completely refuted by this excellent free-market textbook. Students, if your professors don’t use this text, get it for yourself so you can really understand the concepts of sound economics.”

– Amazon review

SPECIAL OFFER:

ONLY $39.95

This new 5th edition (2017) of Economic Logic is a 714-page quality paperback published by Capital Press/Regnery. It retails for $79.95, but is available at a discount — only $39.95, plus $5 shipping & handling (for all orders outside the US, add an additional $15), by calling Ensign Publishing at:

1-866-254-2057

About the Author

Mark Skousen, Ph. D., is a Presidential Professor at Chapman University, has taught economics at Columbia University, is the former president of FEE, and is the author of over 25 books, including several in Austrian economics: The Structure of Production (NYU Press); Vienna and Chicago, Friends or Foes? (Capital Press), The Making of Modern Economics (Routledge), and A Viennese Waltz Down Wall Street: Austrian Economics for Investors (LFB Books). For more information, go to www.mskousen.com.

“Mark Skousen is America’s leading economic author because he roots his luminous books in the real world. He is the Hayek of our era.” – George Gilder

Based on his popular classes at Chapman University and Columbia Business School, Professor Mark Skousen has just released the 5th edition of Economic Logic, the only “no compromise” college-level course in free-market economics.

It is uniquely based on his 40 years of experience as a CEO of several successful businesses, economic analyst for the CIA, president of a non-profit (FEE), and teacher at major colleges and universities. (He has a Ph. D. in monetary economics from George Washington U.) He is the founder of FreedomFest, “the world’s largest gathering of free minds.” Dr. Skousen was recently ranked as one of the world’s top 20 most influential economists today.

Economic Logic is divided into 28 lessons or chapters, and is used as a primary textbook in over a dozen major colleges and universities. It is designed to give you the analytical tools and market solutions to the most pressing problems facing business, government leaders, and individuals today:

Real market solutions to the Great Recession and European debt crisis (including the hidden benefits of “austerity” programs).

How John Mackey’s revolutionary “stakeholder” brand of “conscious capitalism” is destined to transform global business.

Proof that the Federal Reserve is the engine of inflation, not the defender of sound money. (And why gold will never disappear as a monetary asset.)

Why the Chinese model of state capitalism is destined to fail.

How the Austrian school of Mises and Hayek trumps the Keynesians, Chicago monetarists, and Marxists. (Each chapter highlights an influential economist).

How the welfare state violates the fundamental principles of sound economics, and how other countries have resolved the unfunded liability problem.

Why saving, technology, entrepreneurship, and business investment drive the economy — not consumer spending or government stimulus.

It introduces a major breakthrough in macroeconomics: a “top line” in national income accounting called gross output (GO), and why GDP distorts and leaves out critical information about production, consumption and investment.

A full critique of Keynesian economics and the dangers of easy-money policies.

Updates on the economics of global warming, Obamacare, and other threats to prosperity.

What Others Are Saying

“Students love it. I will never go back to another textbook.” – Prof. Harry Veryser (University of Detroit-Mercy)

From Amazon reviews: “Ground breaking….Gave me a profound new understanding of real-world economics and personal finance….Easy to read without any need for math…My college economics courses, filled with perplexing theories like the paradox of thrift, GDP and Keynesian fiscal policy, were completely refuted in this excellent free-market textbook.”

This new 5th ed. of Economic Logic is completely revised and updated, a 714-page workbook published by Capital Press/Regnery. It retails for $79.95, but you pay only $39.95, plus $5 S&H (for all orders outside the US, add an additional $15). For all credit call orders, call Ensign Publishing, toll-free 1-866-254-2057, or go to www.miracleofamerica.com.

Washington, DC (Thursday, November 3, 2016): Gross output, the top line of national income accounting, increased 1.1% in the second quarter of 2016, according to data released today by the Bureau of Economic Analysis. It is still sluggish and without indication of significant growth. While the overall economy showed signs of growth, industries in the early stages of production are struggling according to economic data released today.

The Skousen B2B Index, a measure of business spending throughout the supply chain, moved into positive territory after falling for three quarters in a row. The B2B Index change versus prior quarter in nominal term is currently at +1.1%. The small increase is a positive sign. However, unless the trend continues for the remainder of the year, the threat of a potential mild business recession still remains as we approach 2017.

Based on data released today by the BEA and adjusted to include all sales throughout the production process, nominal adjusted GO increased 1.1 % in the 2nd quarter of 2016, slightly better than the increase in the 1st quarter of 2011 (+0.3%) [1]. Adjusted GO was almost $39.5 trillion in the 2nd quarter, more than double the size of GDP ($18.45 trillion), which measures final output only. Nominal GDP, the bottom line of national income accounting, rose 0.92% in the 2nd quarter versus the previous quarter (3.7% annualized).

Supply chain activity varied among various sectors significantly in the 2nd quarter, with significant declines in early-stage production. Compared in real terms to the previous quarter, mining activity fell by another -12.6% in Q2 after declining -18.7% in Q1. The Construction sector declined -7.5% after showing a +9.4% growth in the previous quarter. The information sector also reversed course and declined -2.3% in Q2 after a 5.6 increase in Q1 2016.

The Professional, scientific, and technical services sector made a positive contribution and increased 3.6%. However, that is less than half the growth rate (+8.8%) from Q1. The sector that increased more than previous quarter was Health care and social sciences, which grew by almost 10%. This is higher by a third compared to the Q1 result of +7.5%

While the Retail sector was slightly higher (1.78%) in Q2 2016 versus the previous quarter, the Wholesale sector was down (-1.80%). This is another indicator that spending in early stages is still struggling.

Government spending (11% share of total GO) was flat (+0.13%) with federal spending growing a bit more (0.21%) than local government, which grew only 0.09%.

Gross output (GO) and Gross domestic product (GDP)are complementary statistics in national income accounting. GO is an attempt to measure the “make” economy; i.e., total economic activity at all stages of production, similar to the “top line” (revenues/sales) of a financial accounting statement. In April 2014, the BEA began to measure GO on a quarterly basis along with GDP.

GDP is an attempt to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government. GDP is similar to the “bottom line” (gross profits) of an accounting statement, which determined the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP. During the financial crisis of 2008-09, GO fell much faster than GDP, and afterwards, recovered more quickly than GDP. Still, it wasn’t until late 2013 that GO fully recovered from its peak in 2007. The fact that the adjusted GO reversed course and grew faster than GDP is a positive sign. However, GO growth will have to increase significantly in upcoming quarters to suggest that the economic recovery continues into 2017.

Real Business Spending (B2B) Suffers Slight Decline

We have also created a new business-to-business (B2B) index based on GO data. It measures all the business spending in the supply chain and new private capital investment. Nominal B2B activity increased 1.1% compared to the previous quarter to $22.5 billion. Meanwhile, consumer spending rose 1.6% to $12.7 billion in Q2.

“The GO data and my own B2B Index demonstrate that total US economic activity has picked up slight,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University. “B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain, and it indicates tepid growth at this stage, despite desperate efforts by the Federal Reserve and the federal government to stimulate the economy.”

Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out the supply chain and business to business transactions in the production of intermediate inputs,” he notes. “That’s a big part of the economy. GO includes B2B activity that is vital to the production process. No one should ignore what is going on in the supply chain of the economy.”

Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990). A new third edition was published in late 2015, and is now available on Amazon.

The BEA’s decision in 2014 to publish GO on a quarterly basis in its “GDP by Industry” data is a major achievement in national income accounting. GO is the first output statistic to be published on a quarterly basis since GDP was invented in the 1940s. With GO and GDP being produced on a timely basis, the federal government now offers a complete system of accounts. As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Skousen adds, “Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and the business cycle, and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually only about a third of economic activity, not two-thirds that is often reported by the media. As the chart above demonstrates, business spending is in fact almost twice the size of consumer spending in the US economy.”

For More Information

The GO data released by the BEA can be found at www.bea.gov under “Quarterly GDP by Industry.” Click on interactive tables “GDP by Industry” and go to “Gross Output by Industry.” Or go to this link directly: http://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=3&isuri=1&5102=15

For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations at skousenpub@gmail.com.

# # #

—–

[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are fabricated and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the 2016 2nd quarter is $32 trillion. But by including gross sales at the wholesale and retail level, the adjusted GO is $39.5 trillion in Q2 2016. Thus, the BEA omits $7.5 trillion in business-to-business (B2B) transactions in its GO statistics. We include them as a legitimate economic activity that should be accounted for in GO, which we call Adjusted GO. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.

My book The Making of Modern Economics has just won the Choice Book Award for Outstanding Academic Title for 2009. Choice is the reviewing journal for academic libraries. I was delighted by this surprise announcement, especially for a 2nd edition!

Winner of 2009 Choice Award for Outstanding Academic Title

Some of the unique characteristics of The Making of Modern Economics:

1. A major critique of Karl Marx’s theories of capitalism, labor, imperialism and exploitation, and why most of his predictions have utterly failed. (Many former Marxists report that that this chapter alone converted them to the free market.)
2. Two chapters on Keynes and Keynesian economics, what one economist has called “the most devastating critique of Keynesian economics ever written.”
3. Five full chapters on the Austrian and Chicago schools of free-market economics. It is the only one-volume history of economics written by a free-market economist (all previous histories had been written by socialists, Keynesians and Marxists).
4. How Keynes saved capitalism — from Marxism!
5. Over 100 illustrations, portraits, and photographs.
6. Provocative sidebars, humorous anecdotes, even musical selections reflecting the spirit of each major economist.

Choice Review: “With a supreme, lively blend of economics and sociology, Skousen has magnificently managed to put flesh, blood, and DNA on the skeleton of economics in this survey of great economic thinkers. This new work is must reading for economists who want to acquire professional depth and richness. Essential. All economics collections and all levels of readers.”

Description: Here is a bold, updated history of economics–the dramatic story of how the great economic thinkers built today’s rigorous social science. Noted financial writer and economist Mark Skousen has revised this popular work to provide more material on Adam Smith, Marx, and Keynes, and expanded coverage of Joseph Stiglitz, “imperfect” markets, the financial crisis of 2008, and behavioral economics.

“Mark’s book is fun to read on every page. I have read it three times, and listened to it on audio tape on my summer hike. It deserves to stay in print for many decades. I love this book and have recommended it to dozens of my friends.” — John Mackey, CEO/President, Whole Foods Market

“I champion Skousen’s new book to everyone. I keep it by my bedside and refer to it often. An absolutely ideal gift for college students.”– William F. Buckley, Jr., National Review

“Mark Skousen has emerged as one of the clearest writers on all matters economic today, the next Milton Friedman.” –Michael Shermer, Scientific American

“Having no previous interest in economics, I was honestly surprised to find your book so captivating.” –Haila Williams, Production Manager, Blackstone Audio Books

“Skousen gets the story ‘right’ and does it in an entertaining fashion, without dogmatic rantings.” –Peter Boettke, George Mason University

“One of the most readable ‘tell all’ histories of the 20th century.”–Richard Ebeling, Hillsdale College

“I couldn’t put it down! The musical accompaniments for each chapter are a wonderful touch. Humor permeates the book and makes it accessible like no other history. It will set the standard.”–Steven Kates, chief economist, Australian Chamber of Commerce

“The most fascinating, entertaining and readable history I have ever seen. I highly recommend it for translation abroad.”–Ken Schoolland, Hawaii Pacific University

“My students love The Making of Modern Economics! Mark Skousen makes the history of economics come alive like no other textbook.”– Roger W. Garrison, Auburn University.

“It’s unputdownable!”–Mark Blaug, University of Amsterdam

“Skousen is the only economist I know who I can understand. He writes for the common man!” — Dr. Laurence Hayek, U. K.

“Mark Skousen has a genius for explaining complex issues in a clear way and connecting ideas. He is the Henry Hazlitt of our time.” –Steve Mariotti, President, NFTE

“Mark Skousen is a great economist, great philosopher, great entrepreneur, and great friend. He should win the Nobel in economics.” — Steve Forbes

I wrote the following article for Human Events, but apparently it was too controversial and was removed after about 100 e-letters of commentary, both favorable and critical. Read here’s the original op-ed, uncensured.)

It’s easy to blame the sixty Democrats, as the Wall Street Journal does, for “the worse bill ever.” It solemnly declares: “These 60 Democrats are creating a future of epic increases in spending, taxes and command–and control regulation.”

True enough. But what’s the root cause of this disaster?

Sorry, friends, it’s not the Democrats, nor the American people who elected them.

The real culprits are two “conservative” Republicans who ran the show the previous eight years: George W. Bush, and his “master political strategist” Karl Rove. If it weren’t for these two fools in the White House, the Democrats wouldn’t have sixty Senators, including a professional comedian from Minnesota, to close off debate and ram down our throats a bill worse than Hillary Care.

The fact is that the Bush & Rove comedy act pushed through a litany of ruinous government policies that led to the lowest approval numbers in history:

–the undeclared and costly War in Iraq and its stepchild the unconstitutional Patriot Act.
–the monstrous No Child Left Behind Act that dramatically increased federal intervention in private education.
–the Prescription Drug Act that gave the American people another benefit-corrupted entitlement and unfunded liability.
–large and growing deficits and national debt (according to the Cato Institute, George W. Bush was the biggest spender since LBJ: http://www.cato-at-liberty.org/2009/12/19/george-w-bush-biggest-spender-since-lbj/)
–the worst financial crisis since the Great Depression, largely due to their failure to reform government-sponsored agencies Freddie Mac and Fannie Mae.

The supply-side tax cuts were probably the only major piece of economic legislation that Bush/Rove deserve credit for, but even then, they blundered in not making the tax cuts permanent. So now even if the Republicans take back Capitol Hill in the 2010 elections, all President Obama has to do is veto an extension of the Bush tax cuts, a voila, taxes will increase automatically.

In short, we are paying a heavy price for the “compassionate conservativism” of Bush/Rove.

Once Obama Care becomes law, like Medicare and other “Great Society” programs, it will never end. We will be stuck with national health care for the rest of our lives.

And how are Bush and Rove rewarded? Fortunately, we aren’t seeing much of George Bush, who is quietly in retirement in Texas.

The tragedy is Karl Rove, who has been rewarded by conservatives. He’s treated like a triumphant general on Fox News almost every night, and was signed on as a regular columnist in the prestigious Wall Street Journal.

I recently finished “The Making of Modern Economics” by Mark Skousen. I found this book quite intriguing. It provides a powerful foundation and historical background to economic thought by offering the histories of the individuals that most contributed to modern schools of economics and public policy.

Watching the shouting matches occurring at the town hall meetings across America, do you ever wonder why nobody holds town hall meetings or writes complaining letters to Congress about food and housing?

After all, food and housing are even more important than medical help. Most Americans don’t need to go to the doctor every day, but you do need to eat every day and live under a roof.

Few things other than a New Deal can be more painful than an economic depression. But few eras were more vital and enjoyable than the private side of the last one.

One of the rare books in my financial library is “I Like the Depression,” by Henry Ansley, the “Jackass of the Plains.” This amusing little volume was published by Bobbs-Merrill in 1932, and the price was a buck fifty.

Ansley, a newspaperman from Amarillo, Texas, described a prosperity in the 1920s that wasn’t that great. He burned candles at both ends, became a financial hotshot, and ultimately overextended himself. Then the depression hit: “Good-by twin beds, frozen salads, indigestion, credit and swelled head. Hail to the old-fashioned nightgown, buttermilk, sow bosom [a kind of food], comfort and cash.” He lost his job but found happiness by rediscovering leisure, friends, and neighborliness. Hard times taught him the value of a dollar and not to take things for granted: “My dog is my pal again; my wife my lover and my Dad my advisor.”

Ansley’s book was never a bestseller, but it started me thinking. Can the worst of times also be the best of times? The history books are replete with the evils of the 1930s — soup lines, bank closings, Hoovervilles, dustbowls, bear markets, demoralizing despair. It’s all been retold countless times, in such books as Milton Meltzer’s “Brother, Can You Spare a Dime?,” John Steinbeck’s “The Grapes of Wrath,” and most recently Amity Shlaes’s “The Forgotten Man.” The Great Depression brought us Nazi Germany, the New Deal, Keynesianism, and, some say, World War II.

Not surprisingly, everyone from Wall Street to the halls of Congress is worried that the current recession will turn into the dreaded D, and has seized on desperate rescue measures. But was the Great Depression all bad? Did anything good come out of the 1930s? I started doing some research and was amazed to find a bright side to the gloomy ’30s — a lower cost of living, great new inventions and other technological advances, new forms of entertainment, more sports and reading, and a return to sober social behavior.

Start with leisure. Henry Ansley describes the free time he had during the depression. Indeed, millions of Americans had a lot more leisure time. Before the depression, almost everyone worked a six-day week. In the 1930s, the five-day work week became commonplace. “Spread the work!” was the rally cry. By 1937, wage earners in 57% of all manufacturing companies enjoyed a five-day week. Saturday was now a free day, and the Saturday rush hour was replaced by the Friday rush hour.

As a result, there was a tremendous increase in sports and leisure-oriented jobs. People began getting out into the sun and open air and taking a greater interest in golf, tennis, skiing, roller skating, and bicycling. Softball became a national pastime; by 1939, there were nearly half a million teams and 5 million players of all ages throughout the country. Expensive private club golf courses withered, but inexpensive public courses grew. Miniature golf was all the rage in the early ’30s. Bobby Jones became the first and only person to win the Grand Slam of golf in 1930. And black athletes became national idols for the first time, Joe Louis in boxing and Jesse Owens in track and field.

Americans traveled more. House trailers became a very big business. Camping, canoeing, and other inexpensive outdoor activities increased in popularity. People took their cameras with them, and photography became a craze of remarkable dimensions. Americans took tons of pictures with their small German cameras. Life and Look — big, glossy picture magazines — became popular.

Dancing, all the rage in the ’20s, continued to rage in the ’30s. Americans would dance their way out of the depression! Young people everywhere danced the swing, the jitterbug, and the boogie woogie to the music of Benny Goodman, Tommy Dorsey, and Louie Armstrong.

Indoors, parlor games such as bridge and the ingenious “Monopoly” were popular. People read more, and circulation at local public libraries increased. Kids loved comic books, especially “Superman,” the world’s first comic book superhero. Books “condensed” by Reader’s Digest saved time and money. There was an intense interest in epic novels — Pearl Buck’s “The Good Earth,” A.J. Cronin’s “The Citadel,” Margaret Mitchell’s “Gone with the Wind” — as well as such how-to books as Dale Carnegie’s “How to Win Friends and Influence People.” (1937, with 17 printings right away).

In the same year, Lin Yutang, the Chinese-American Taoist, published “The Importance of Living,” which was to become especially popular among libertarians. It encouraged Americans to stop worrying and start “letting go.” One chapter was entitled “The Art of Loafing.” “I am quite sure,” Lin wrote, “that amidst the hustle and bustle of American life, there is a great deal of wistfulness, of the divine desire to lie on a plot of grass under tall beautiful trees of an idle afternoon and just do nothing.” Whether fortunately or unfortunately, in their own opinion, millions of Americans got to live Lin’s upbeat message of idleness.

New Entertainments

Idleness — and its companion, entertainment. People wanted to forget their troubles, and radio and motion pictures provided an escape. Radio really came of age during this period, with up to 80 million listeners on some evenings. There was a lot more to radio than FDR’s fireside chats. It was the way to hear worldwide news bulletins, good music, and such half-hour comedies as “Amos ’n’ Andy,” the first syndicated program, and “The Jack Benny Show.” In the late 1930s, NBC was carrying broadcasts of symphony orchestras, especially its own orchestra, conducted by the immortal Arturo Toscanini, to 10 million listeners every week. And who can forget the night of Sunday, October 30, 1938, when Orson Welles broadcast his version of H.G. Wells’ “The War of the Worlds”?

Hollywood blossomed during the ’30s. In one decade, the motion picture industry went from silent films to talkies in Technicolor. Films brought the American public together as never before. Gary Cooper, Fred Astaire, Ginger Rogers, Katharine Hepburn, John Wayne, Mickey Rooney, and Clark Gable were welcome alternatives to Adolf Hitler, Benito Mussolini, Josef Stalin, and other demagogues of the era. Many considered Shirley Temple a gift from God during the gloomy de-pression. The motion picture event of 1938 was the first full-length animated cartoon, Walt Disney’s “Snow White.” The same year saw one of the first films in Technicolor, the blockbuster “The Adventures of Robin Hood,” starring Errol Flynn. A burst of classic award-winning films came out the next year, including “The Wizard of Oz,” “Mr. Smith Goes to Washington,” and the greatest of all epic films, “Gone With the Wind.”

The ’30s was the era of the first great horror films, “Frankenstein,” “Dracula,” “Dr. Jekyll and Mr. Hyde,” and “King Kong.” For a dime, Americans could go to the Saturday matinee and see double features of cowboys, adventurers, and gangsters. The silver screen brought us science fiction, serial thrillers and the Singing Cowboy (Gene Autry). The theater was filled with humor — Laurel and Hardy, W.C. Fields, the Three Stooges. Americans would laugh their way out of the depres-sion! There were reasons why Chicago economist Robert Lucas, Jr., called the 1930s “one long vacation.”

New Technology

Alvin Hansen and other Keynesian economists developed their “stagnation thesis” in the late 1930s, arguing that the United States was indefinitely stuck in an economic rut. They claimed that there was no new technology, no new frontier to drive the American economy. They ignored the tremendous economic progress that took place throughout the depression — the invention of plastics, artificial fibers, plywood, the 2-cycle diesel engine, and lighter, tougher steels.

Ernst Ruska and Max Knoll invented the electron microscope in 1932. Howard Armstrong created FM radio in 1933. Wallace Carothers manufactured nylon, and Robert A. Watson-Watt discovered radar in 1935. Hans Pabst von Ohain developed the jet engine in 1937 and the first jet airplane in 1939. Chester Carlson originated xerography in 1938. Igor Sikorsky made the first practical helicopter in 1939. Several people, including Philo T. Farnsworth and Isaac Shoenberg, developed television in the 1930s. CBS and NBC began broadcasting TV during this decade.

Manufacturers weren’t idle in getting new technology to market. New household products included electric mixers, pop-up toasters, vacuum cleaners, refrigerators, and irons. For the first time, consumers enjoyed sliced bread and packaged frozen foods. Union Pacific came out with fancy new streamlined, air-conditioned trains. Mass-market automobiles could now accelerate to 60 mph, carrying passengers along new highways with underpasses and cloverleafs. The dirigible, a new form of air transportation, appeared in 1936 (but disappeared with the fiery destruction of the Hindenberg a year later). The Douglas DC3 came out in 1936, traveling at 200 mph, compared to the 1932 passenger airplane speed of 110 mph. Coast-to-coast travel in overnight air sleepers was now possible. New ocean liners, such as the Queen Mary, appeared in a crowded New York harbor. Everyone came to witness the building of the 102-story Empire State Building and the Rockefeller Center (the only skyscraper group to rise in the 1930s). And who could not marvel at the Golden Gate Bridge, opened to traffic on May 28, 1937?

Social historian Frederick Lewis Allen, author of “Only Yesterday” (1931), a bestselling history of the 1920s, summed it up best when he wrote in a sequel, “Since Yesterday” (1940), “the American imagination was beginning to break loose again.” At the end of the decade, the New York World’s Fair had as its theme “The World of Tomorrow.”

Society and Economics

The depression brought about a change in American social trends. People attended church more. Many retreated from the sexual revolution of the roaring ’20s. The mood was more somber and prudent, even after Prohibition was repealed in December 1933. (By the end of the decade, Alcoholics Anonymous was founded.) There was greater approval of marriage and family life. The divorce rate dropped sharply, by 23% from 1929 to 1932, though so did the marriage rate and the birth rate — possibly because marriage and children cost money.

Not all economic news was bad. The most favorable statistic was the decline in the cost of living. During the period 1929–32, retail prices dropped by an average 24%, wholesale prices by 31%, farm prices by 51%, and raw commodity prices by 42%. Of course, wages, salaries, dividends, and other forms of income declined as well, but for those who kept their jobs and held onto their assets, the loss of nominal income was offset by sharply lower prices for all consumer products. “Everything was all right in those years,” said a woman quoted in Amity Shlaes’ book, “but only if you had a job.”

Unemployment reached 25% and higher in some regions at the depths of the depression, causing enormous hardship for millions of Americans. But see it in another light: three out of every four people were employed in the worst parts of the depression. Total employment rose after 1932, reaching 90% by the end of the decade. In a sense, the Democrats were right: happy days were here again!

Businesses adjusted to the new deflation by downsizing, cutting costs, and implementing labor-saving devices. Even the farming industry mechanized. By 1936, despite persistent unemployment, real national output had nearly recovered to pre-depression levels. Auto sales exceeded all previous years except 1928–29. The steel industry was operating at close to capacity. Even the building industry was climbing briskly. Miami was having its best season since the collapse of the Florida land boom. The race tracks were crowded, lavish debutante parties flourished in the big cities, and the night clubs were full.

For bulls and bears alike, the 1930s was the most fantastic period in stock market history. Stock prices collapsed between 1929 and 1932, losing an average 88%, but industrial, rail, and utility stocks all shot up from their lows in the summer of 1932, anticipating the end of hard times. Few bull markets have ever equaled the rocket performance of the summer of 1932, when the rails tripled within eight weeks and the utility averages doubled. Wall Street went on a rampage for the next four years. The Dow rose 67% in 1933, 4% in 1934, 38% in 1935, and 25% in 1936. After a sharp 32% correction in 1937, the market re-sumed its upward trend until war broke out in Europe in September, 1939. There were also plenty of speculative opportunities on the long side of gold and other natural resource stocks during the ’30s. In sum, the bulls, not just the bears, had plenty of chances to make money in the 1930s.

There’s an old saying, “It is the irritation in the oyster that forms the pearl.” The Great Depression was an irritation that most people didn’t expect. A few people couldn’t take the hard times and jumped out of windows, but most responded to the challenge. Adversity often demonstrates the virtue and creativity of humankind. Bad news often creates good news and opportunities to learn and advance. The 1930s were no exception.

Mark Skousen is the author of Economic Logic, now available in its second edition.

“Everything was all right in those years, but only if you had a job.” ~ Grandmother of Amity Shlaes in The Forgotten Man

Can the worst of times also be the best of times? When we think of the Great Depression of the 1930s, we are quick to recall the soup lines, bank closings, dust bowls, bear markets, demoralizing despair, and the aftershocks — Nazi Germany, the New Deal, Keynesianism, and, some say, World War II. Today, as the current recession worsens, everyone fears the dreaded D and seeks desperate rescue measures.

But was the Great Depression all bad? Truth is, there’s a bright side to the gloomy Thirties — a lower cost of living, huge technological advances, new forms of entertainment, more leisure time, and a return to responsible social behavior.

It was the beginning of the five-day work week….the Golden Age of radio and film….the playing of social sports like bridge, Monopoly, and softball….leisure time to read books and dance the jitterbug….while scientists invented the electron microscope, FM radio, radar, the jet airplane, and network television….

Chicago economist Robert Lucas, Jr., once called the 1930s “one long vacation,” and social historian Frederick Lewis Allen exclaimed, “[T]he American imagination was beginning to break loose again.”

There’s an old Asian saying, “It is the irritation in the oyster that forms the pearl.” A few people couldn’t take the hard times and jumped out windows, but most people responded to the challenge. Adversity often brings out creativity and opportunities to learn and advance. The 1930s were no exception.

This is a summary of a full-length article called “Brother, Can You Spare a Decade?” that I wrote on the subject in the May issue of Liberty magazine. Since writing this controversial and politically incorrect article, I’ve been attacked and defended by friends and foes.

For example, Mike Sharpe, my academic publisher at M. E. Sharpe and a social Democrat, took strong exception to my article. He wrote:

“What Mark Skousen says in ‘Brother Can You Spare a Decade?’ is beside the point. Millions of people were jobless, hungry, and in despair during the Depression. The fact that songs were written or scientific discoveries were made doesn’t mitigate the suffering. Does the work of Socrates mitigate the effects of the tyranny that executed him? Do the discoveries of Galileo offset the Roman Inquisition? Do the works of Shakespeare compensate for the expulsion of the Jews from England? Does the first novel by an American black, Clotel, written in 1853, reflect well on slavery? Do the performances of Von Karajan under Hitler make Nazism enjoyable? Does “God Bless America” sung by Kate Smith during World War II make that war less of a tragedy? Skousen’s entire argument is a non sequitur, harmful to a true understanding of the effects of the Depression and by extension, the current recession. He should not make light of suffering.”

My response:

I’m reluctant to start a fight with the publisher of my books, but here goes:

My essay may well be irreverent, but it’s not irrelevant. Mr. Sharpe’s view is the traditional view. I don’t dispute it. There was a lot of real suffering during the Great Depression, and I mention the dark side of the 1930s at various times in the essay.

But what I do try to do is look at the positive things that came out of the Great Depression. Sharpe wants to ignore them. Yes, there was a lot of suffering, but there were times of joy, good times, and scientific advances in the midst of the depression.

I think we have to look at both extremes to find out what really matters, the bad and the good that came out of the Great Depression and today’s recession. Sharpe focuses on the suffering that goes on in a recession/depression, I focus on the positive effects of a downturn, such as the good things people are doing now (out of necessity): being more careful about what they spend, saving for a rainy day, not taking their job for granted, and sensing trouble rather than going along merrily trusting in the establishment, without thinking. What’s so bad about that?

Both views are important.

Sometimes I think we as a nation and as legislators are impatient. We want to avoid suffering at all times, and take pills if we sense even a slight headache. No one wants to be unemployed or fired from a job, but you know what? Lots of unemployed and fired people tell me later (a year or two after finding another job) that it was the best thing that ever happened to them. Not all, but many.

I conclude that a lot of good can come out of bad times.

What’s your view? Is the recession or depression good or bad for America?

Officially, President Obama’s $3.6 trillion budget is titled “A New Era of Responsibility.”

That’s false on two counts. It’s an era – not of responsibility, but of big-government taxation, spending, and regulation. And it’s not new. History is full of attempts to inflate the state to grow the economy. Virtually all have ended badly. As the recent sell-off reminds us, Wall Street’s verdict on Obamanomics has been quick and sharp.

The president’s budget is right in castigating the “troubled past” of the Bush administration, which spent money like a drunken sailor on education, healthcare, bailouts, and two seemingly endless wars in the greater Middle East, with virtually no regard for how to pay for a rapidly growing national debt.

But now we must confront the troubled future. Obama has adopted the big-spending policies of George W. Bush, with trillions more proposed for education, bailouts, and healthcare. He wants to sharply reduce (but not end) the American presence in Iraq. At the same time, he plans to deploy an additional 17,000 troops to Afghanistan, which may lead to an expanded quagmire there.

Hasn’t Obama read the bestseller “Three Cups of Tea: One Man’s Mission to Promote Peace … One School at a Time,” by Greg Mortenson and David Oliver Relin? A Pakistani general who talked with Mr. Mortenson aptly identified the real problem in Afghanistan: “The enemy is ignorance. The only way to defeat it is to build relationships with these people, to draw them into the modern world with education and business. Otherwise the fight will go on forever.”

In some ways, Obama’s plans are more grandiose than Bush’s. He wants to encourage green technology and energy independence, and move toward national healthcare. The cost is enormous. The deficit for this year alone is expected to reach $1.7 trillion.

To help pay for this, Obama proposes the largest tax increase in history. Some of this, such as new taxes on oil and gas companies, is explicit. Some of it, such as the new cap and trade program, is quite subtle. And some of it will “merely” repeal the Bush tax rates on high incomes. But all of it represents a tremendous muzzle on the economy at a time when it needs to be unleashed.

Even these huge tax hikes won’t be nearly sufficient to pay for the outlays. In fact, to pay for it in full, The Wall Street Journal pointed out, Uncle Sam would have to confiscate every penny earned by Americans making at least $75,000 a year.

What’s the future for Obamanomics? The stock market’s reaction doesn’t bode well. The Dow has fallen more than 18 percent since the last trading day of Bush’s term. Clearly, Wall Street thinks that Obama’s tax, spend, and regulate policies will be a disaster.

Despite the dire headlines, the world is not coming to an end, we are not headed into another Great Depression, and free-market capitalism has not breathed its last breath.

In my book, “The Big Three in Economics,” I found that the press has frequently and prematurely written the obituary of Adam Smith and his free-market philosophy, only to see a new and more vibrant global marketplace reemerge after being savagely attacked by Keynesians, Marxists, and assorted socialists. Market capitalism survived and prospered after the boom-bust industrial revolution of the 19th century, and the Great Depression and world wars of the 20th century. It will recover from the financial panic of 2008-09 and Obamanomics.

Adam Smith, the supreme defender of market capitalism, expressed this optimism well in 1776 when he wrote in “The Wealth of Nations”:

“The uniform, constant, and uninterrupted effort of every man to better his condition … is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration.”

The ideas of Adam Smith and his modern followers will make a comeback. Already, pro-market forces are gathering in Congress to defeat Obama’s ambitious and highly socialistic agenda. Charities and nonprofits are already up in arms about the proposed limits on tax deductions for wealthy donations for good causes.

I’m doing my part by holding the world’s largest gathering of free minds at FreedomFest, July 9-11, 2009, in Las Vegas.

Jo Ann Skousen’s Odds & Trends

Movie reviews, theater reviews, and commentaries by Jo Ann Skousen, author, editor, professor and Mark's wife of 41 years. She is the Festival Director for the Anthem Libertarian Film Festival and the entertainment editor for Liberty Magazine.

Mark Skousen’s Investor’s CAFE

Skousen Investor CAFÉ is a weekly electronic newsletter written by Dr. Mark Skousen. Mark offers commentary on the markets, the economy, politics and other topics of interest and what they mean to individual investors. Sign up for FREE here.

FreedomFest Conference

FreedomFest is an annual festival in Las Vegas where free minds meet to celebrate “great books, great ideas, and great thinkers” in an open-minded society. It is independent, non-partisan, and not affiliated with any organization or think tank.

Anthem Film Festival

Anthem is the only film festival in the country devoted to promoting libertarian ideals. Anthem shows films and documentaries that celebrate self-reliance, innovation, commerce, individual rights, and the power of persuasion over force. We are looking for the year's best films about personal and civil liberty.